Boston, MA and Essex, MA (June 19, 2017) – Though the United States government is no longer supporting the Paris Climate Agreement, hundreds of American institutions – including endowments and foundations – have joined businesses, philanthropists, cities and states across the country in remaining committed to the international accord.
Many institutions struggle to integrate environmental objectives and considerations into their investment portfolios, and the language of the Paris Agreement provides a good framework for moving forward. To integrate this framework effectively, they would do well to focus investment decision-making around three elements of their organizations and missions – their Purpose, Priorities and Principles – and to ensure their investment policies reflect those guideposts, according to the Intentional Endowments Network (IEN), a non-profit peer learning network, and global investment firm Cambridge Associates. IEN and CA have created related resources for institutions, “Considerations for ESG Policy Development” and “Paris Agreement in the Investment Policy.”
“The investment risks and opportunities associated with the transition to a low-carbon economy remain salient for many long-term investors, and the U.S. exit from the Paris Agreement should not prevent them from integrating environmental factors into their investment decisions,” says Georges Dyer, Principal of the Intentional Endowments Network.
“Long-term investors understand that climate change and human responses to it will present both risks and opportunities for their portfolios,” says Tom Mitchell, Managing Director in the Mission-Related Investing Practice at Cambridge Associates. “The guiding objectives of the Paris Agreement provide investors a sound framework for integrating sustainability factors and considerations within investment policy, which serves as a blueprint for action and support our longer term view on the importance of resource efficiency and sustainability.”
Dyer and Mitchell explain how articulating Purpose, Priorities, and Principles in a well-designed investment policy can help institutions effectively incorporate environmental concerns into their investment portfolios. Questions investors should explore include:
- What is our institution’s purpose? That is, what are our primary goals and core beliefs – and how should they inform our investment decisions? An institutional purpose usually takes an aspirational, longer-term time horizon. For example, an investor’s Purpose statement may simply be to support the transition toward a low-carbon economy. Ultimately, defining a purpose ensures that the institution knows what it is striving toward with its investments.
- What are our core environmental or social priorities, and how can we express them in policy language? Thinking about priorities allows investment committees to link their broad purpose to specific investment areas. If an institution’s purpose is to support the transition toward a low-carbon economy, for example, its investment priorities may exist in areas like renewable infrastructure, clean transportation and smart energy management.
- What are the principles that inform our investment decision-making? Endowments and foundations should think of these principles as overarching guidelines that help ensure the investments they make are in line with their purpose and priorities. For instance, a guiding principle for some investors may be that all investment opportunities should be viewed through a sustainability lens.
Dyer and Mitchell add that decision-makers at endowments and foundations should also proactively study sustainability themes to remain aware of potential opportunities to align their portfolios with their environmental goals.
Ultimately, note Dyer and Mitchell, open discussions among key stakeholders are essential for defining and refining an institution’s investment purpose, priorities and principles. If institutions do not seek input and build consensus internally, they will be more likely to fall short of their sustainable investment goals.
Cambridge Associates’ Mission-Related Investing Practice works with institutions to design and implement their mission-related investing programs.
To learn more about how investors can organize their investment decision-making around their purpose, priorities and principles, please click here.
Related Resources from IEN
- Intentionally Designed Endowments Primer (2014, updated 2016)
- The Business Case for ESG (2016)
- Investing in Clean Energy: Campuses and Endowments (2016)
- Leading Practice Briefing on Fiduciary Duties for Endowments and Foundations Integrating Nonprofit Mission Goals into Investment Practices (2017)
Related Resources from Cambridge Associates
- Mission-Related Investing: Current Practices and Views of Non-Profit Investors, Cambridge Associates (2016)
- The Foundation of Good Governance for Family Impact Investors: Removing Obstacles and Charting a Path to Action, Cambridge Associates (September 2016)
- Risks and Opportunities From the Changing Climate: Playbook for the Truly Long-Term Investor, Cambridge Associates (December 2015)
- Introducing the Impact Investing Benchmark, Cambridge Associates and the Global Impact Investing Network (June 2015)
The Intentional Endowments Network is a non-profit, peer-learning network advancing intentionally designed endowments – that seek to enhance financial performance by aligning investments with institutional mission, values, and sustainability goals. Working closely with other leading organizations in the field, the Network engages key leaders and stakeholders in higher education, foundations, business, and non-profits. It provides opportunities for learning and education, peer networking, convening, thought-leadership and information exchange around a variety of sustainable investing strategies, such as ESG integration, impact investing, and shareholder engagement.
About Cambridge Associates
Cambridge Associates is a leading global investment firm helping endowments, foundations, pension plans, and private clients maximize their impact on the world by building custom investment portfolios aimed at generating outperformance across all asset classes. CA Capital Management, Cambridge Associates’ dedicated OCIO business, provides discretionary outsourcing services to institutions globally, and currently manages more than $20 billion in assets on behalf of more than 80 clients. The firm also provides traditional advisory services and access to research and tools across global asset classes. More than 1,300 employees are located in offices in Arlington, VA; New York; Boston; Dallas; Menlo Park and San Francisco, CA; Toronto; London, UK; Singapore; Sydney; and Beijing. For more information about Cambridge Associates, please visit www.cambridgeassociates.com.